An attempt to explain in ordinary language the bizzare bazaar that is our financial system.

Monday, January 4, 2010

Sound and Fury Signifying Nothing

Greetings gentle readers, I trust you have had a pleasant New Year and welcome to 2010.

Dubai rang in the New Year with a bang inaugurating the Burj Dubai in a massive choreographed ceremony with fireworks. If you live in Dubai it was probably very much like many other grand openings or DIFC week except the fireworks were launched off a massive building instead of a stage that was hanging over your head.

The opening of the Burj had something for everyone, from the Dubai Cheerleaders to the Dubai Gloom Crew. For the cheerleaders it was an example of the fact that the Dubai model has worked. Most of the apartments had been sold off plan and so the apartments were more or less fully booked. There has been a lot of back and forth in terms of price but at the end of the day the building was completed and people the keys are being turned over. It is also a monument to the aspirations of Dubai, there it is right in them middle of town between Deira and Jebel Ali and you can see it from anywhere in Dubai. There is no question that it is indeed the tallest manmade structure, returning the title to the middle east for the first time since the Lincoln Cathedral piped the Great Pyramid back in 1311. Dubai has done it, there have been bumps along the way and all is not sweetness and light but the Dubai dream has now taken on concrete form in the shape of a steel and glass spire that really is the tallest thing in the world.

If you are a Dubai Doomsayer you will talk about how deeply ironic the timing of this is. You might be tempted to draw comparisons with the Empire State Building and the Great Depression, or the Sears Tower and stagflation in the US, or the Petronas Towers and the Asian meltdown. Personally I don’t really think that sort of thing matters. Egyptian hegemony had another 2000 years to run when the Great Pyramid was completed but it makes for good copy so people will write it. Also people will talk about how the prices in the secondary market for off plan apartments in the Burj have been cut in half in the past two years. This is true and it does make a good point but it’s true of Dubai more generally, and Detroit for that matter.

Then there is the fact that they renamed the Burj Dubai as the urj Khalifa al Nahyan. I’m not sure who that joke is on. Was that the kind of thing Sheikh Mohammed did because he didn’t want the Al Nahyan to feel as though they were getting nothing for giving Dubai all these funds? Is it some kind of arrangement whereby Sheikh Mohammed keeps his equity to fight again another day by slyly giving the Al Nahyan something of great symbolic but zero tangible value? Or is it the kind of thing that is the tip of the iceberg and the Al Nahyan demanded it as the first straw in the coming humbling of the Al Maktoum? We’ll never know, the Emirates don’t work in such a way. It will never be clear to the outside world how it was done and what the quid pro quo behind the $25 billion given to date to support Dubai or what will happen in April when the money runs out and more is needed. Can the name of the tower be changed again? The Burj al Saud has a nice ring to it. The Burj Ahmadinejad? Not so much.

Personally I think the opening of the Burj Dubai/Khalifa is a non-story. It doesn’t mean anything. Emaar is not the problem. The grandiosity of the Burj Dubai will pay off to the joy of the cheerleaders and the chagrin of the doom crew but it is largely beside the point. It speaks to the past, not to the future. The future for Dubai is not about luxury apartments or infrastructure, that has been built. What will determine the future of the Emirates and more particularly Dubai is the extent to which it remains the best place in the region to do business and whether it can continue to attract the foreigners who run its businesses and rent its apartments. To this end I think there is something interesting about the launch of the Burj Dubai/Khalifa, and that is that today there were two seemingly disconnected stories that ran in a local Emirati newspaper which hold the key to the future of Dubai and I will publish that tale tomorrow.

The significance of the Burj Khalifa is political, not economic. The tower has more or less paid for itself, Emaar has little debt on its balance sheet and is set to draw rental income from the hotel and shops inside it. That the residential units in the Burj are still selling above their launch price reduces the dangers for Emaar posed by possible defaulters. And this seems unlikely as buyers in this development have deep pockets.

The tower is a throw back to a previous era of exuberance – it would be, that’s the nature of large scale construction projects. But in its flashy daring, the Burj finds its political relevance. It’s a cliché but no less true – it’s a feat that this building got built in the Arab world, a region stereotyped by resistance to change, bureaucratic tangles, squabbling and inshallah. I visited Damascus in September after 10 years. The only two things that were any different were the introduction of mobile phones and the existence of The Four Seasons. Even shop signs were the same.

The crowds at Downtown last night to watch the Burj Khalifa’s inauguration were buoyant. Whether you agree with the sustainability of Dubai’s mega projects, environmental, financial or otherwise, they are indicative of a can-do that is noticeably absent in many other places in the Arab world, including Dubai’s super-wealthy neighbours now playing copycat to its endeavours. If the 1km tower ever gets built in Jeddah, it would be worth the hassle to apply for a business visa just to go and see it.

Whether you like Dubai and its ambitions is a matter of taste. That it has them is remarkable in this region. And given its symbolism, many people were surprised and disappointed that the tower won’t carry the emirate’s name. Although the caps, bags and t-shirts etc in the At The Top souvenir shop still were yesterday.